Sweden: competitive auto bailouts begin with Saab and Volvo

Yesterday, I mentioned an article I caught in the German newspaper Die Welt which outlined the desire for VW and Daimler Benz to receive bailouts in response to the state aid being offered to American car makers. I warned that a competitive bailout situation was underway. Now, this competition has spread to Sweden, where the Swedish government has introduced a bailout package for its auto makers Saab and Volvo.

The state aid now being offered in Germany and Sweden to their automakers is an unintended consequence of the U.S. bailout. In my view, it is only a matter of time before the competitive response hits other countries as well. As the global auto industry suffers from a glut of manufacturing capacity, this can only serve to reduce the viability of vulnerable companies including U.S. automakers.

While I applaud the desire to do something to stop a catastrophic outcome for the U.S. auto industry, we should see the German and Swedish responses as a sign that the proposed bailouts are not going to be successful.

Sweden’s government unveiled a 28 billion-krona ($3.5 billion) support package for Volvo Cars and Saab Automobile that aims to push development of fuel-efficient vehicles and ease the manufacturers’ access to funding.

The plan provides Sweden’s carmakers with a 5 billion-krona rescue loan, additional funding of much as 3 billion kronor for research and development as well as credit guarantees of 20 billion kronor, Finance Minister Anders Borg and Industry Minister Maud Olofsson told a Stockholm press conference today.

“We will exercise significant influenceregarding how the money is spent,” Borg said at the meeting. “This is essentially a measure to secure jobs and production in Sweden.”

General Motors Corp. and Ford Motor Co., the owners of Saab and Volvo Cars, are seeking financial aid from the U.S. government to avert collapse. Ford is exploring the sale of Volvo, and GM is considering options for Saab. Volvo Cars employed 13,000 people in Gothenburg in southern Sweden last year and is cutting more than 2,700 employees in Sweden.

The U.S. House voted 237-170 last night to approve emergency loans for General Motors Corp. and Chrysler LLC, shifting the focus to the Senate, where Republican opposition threatens to delay or kill the legislation.

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty five years of business experience. He has also been a regular economic and financial commentator in print and on television for the past decade. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College.